The budget deal

Making nice

A new budget deal makes another government shutdown unlikely

PEOPLE who inhabit the corridors of Congress spend much of their time discussing why things are not happening. The list of things left undone includes ambitious plans, such as immigration and entitlement reform, as well as prosaic ones that are part of the basic function of government, such as writing a budget. Since 2010 there has been no budget conference between the two houses because the parties were so far apart. But on December 10th something happened. Budget negotiators for the two sides announced that they had reached a deal. It still needs to pass Congress, but that is a lot more likely now that there is something to vote on.

The negotiation, led by Patty Murray, a Democratic senator from Washington state, and Paul Ryan, a Republican congressman from Wisconsin (pictured together), succeeded where past deals had failed by playing with words. Republicans rejected tax rises; Democrats insisted on new revenues. So the proposal would raise a fee paid to the government by airline passengers. (It’s a fee, you see; not a tax.)

Democrats wanted higher discretionary spending (a category that includes roads and schools but not Social Security). Republicans wanted more deficit reduction. The proposal reduces the sequester, a package of deliberately unpleasant budget cuts that kicked in after the two parties failed to do a deal in 2011, and shifts the money freed up by this to the discretionary bit of the budget, while making some savings to mandatory spending, thereby reducing the deficit. By this definitional alchemy, the parties can say they will raise spending and cut the deficit without imposing new taxes.

In practice the proposal swaps some near-term spending cuts for spending cuts later. A mix of tax rises and the expiry of older stimulus measures means that the federal budget for 2014 will remain a drag on the economy. But that effect will be smaller than it would have been without a deal. This is significant. Since 2011 each new spending deal has added heavier fiscal weights to the economy’s ankles than the previous one. This one switches direction. Pantheon Macroeconomics, a research firm, estimates that changes in federal taxing and spending in 2014 will be a drag of around 0.5% of GDP compared with 1.5% this year.

What is in the deal, though, is perhaps less important than the fact that there is one. If the two sides had not reached agreement, the chances of the government shutting down again in January would have increased. That now looks unlikely. The agreement has been attacked by Heritage Action and the Club for Growth, two conservative organisations that hold some sway over the Republicans who control the House of Representatives.

But House Republicans are probably having too much fun pillorying the botched rollout of Obamacare to bring on another shutdown. Mr Ryan, a former vice-presidential nominee, has enough clout to bring enough Republican lawmakers with him, even if they do not much like what they are voting for. And the deal eases some of the pressure on the defence budget, which will help bring Republican security hawks on board. (This group is smaller than it once was, but still matters.) Some House Democrats will vote no, but probably not enough to sink the deal.

If the agreement’s prospects look fair, that is mainly because it avoids, once again, the difficult choices. It does not address the long-term viability of Medicare, Medicaid or Social Security. Extra long-term unemployment insurance, due to expire at the end of the year and the subject of fierce argument, was left out. The debt ceiling, the source of recent anxiety, has been left for another day, too. The most politically bold item is a requirement for federal workers to contribute a little bit more to their generous pension pots, but this applies only to those hired after December 31st. In short, negotiators have drawn up a pact to keep the lights on. As The Economist went to press, it had yet to pass Congress. But compared with recent happenings on Capitol Hill, the deal counts as progress.